Good morning. Good morning from Hannover. On a busy day where not only Talanx, but also a number of our peers disclose their numbers, we are here today in our little studio in Hannover to report about the third quarter and the first nine months of the current financial year 2026. I am here together with my CFO, Jan Wicke.
Good morning.
Who will take you through the details of our number. As usual, a set of complementary data is available on our website, including but not limited to our financial data supplement. As used by now, we are on MS Teams today, and after the presentation, Jan is happy to answer all the questions you may have in relation to our numbers. If you want to pose a question, please use the hand raise feature in MS Teams, and I will slot you into our Q&A. Should your microphone not work properly, you can also use the chat function, and we will read and answer your question accordingly. With this, I hand over to Jan. Jan, the floor is yours.
Well, thank you, Bernd, and good morning, everybody, and thank you for attending our call. I am looking forward to provide you with some insight on how Talanx has performed during the course of the first nine months. It has been very benign development during the first nine months for Talanx. I have three key messages. First, once again, we can provide for a record result at Talanx. We were able to grow our profits by 12% to roughly EUR 2.2 billion for the first nine months. The quality of our earnings is outstanding. What is displayed in our numbers is that we have a good combined ratio of 89% and that we have booked our full large loss budget, even though it is underutilized by EUR 750 million, which translates, assuming that there is no late notification of claims, into EUR 400 million net income.
Together, the record which we have in our results, by the way, in every segment, we have a record in their history, and the high quality of earnings provides us with a lot of confidence to increase our outlooks. First, we have decided to once again increase the outlook for the full year to above EUR 2.8 billion. For 2027, we aim to achieve, for the first time in Talanx history, which will serve as another record, more than EUR 3 billion net income. As usual, I would like to provide you first with an overview of our numbers before I dig into the segments. With regard to the top-line development, we are growing 3% in euro terms, 4.1% currency adjusted. Net income is growing faster by 12% to EUR 2,195 million after nine months, and the return on equity stands at nice numbers at 20.6%.
Where is the development derived from? Primary is contributing a little bit more to the top-line growth, and the same is true with regard to the bottom-line development, where primary has an 18% increase in the net income contribution. Reinsurance Hannover Re has 8% increase in profit and achieving for the first time more than EUR 1 billion after nine months for us. This combines on a group level to 12% earnings growth to roughly EUR 2.2 billion. Looking at the diversification of both revenues and profits, on the left pie chart, you can see that we have a very well globally diversified book with only 15% of our insurance revenues coming out of Germany and the rest from other countries. With regard to the bottom line here, the split is as usual among the different business units.
We have 47% profit contribution from reinsurance, from Hannover Re, from the 50% share, and primary is contributing 53%. So we have a very well-balanced picture, which provides us with a lot of comfort with regard to the challenges ahead. The large loss budget, which is included in our nine months, amounts to EUR 2.4 billion, as it is displayed here on the chart. So far, we have just notifications for EUR 1.7 billion of large loss claims with the earthquake in Colombia on a net basis for the group as a whole. It was the biggest one with EUR 270 million. It was, on the other side, also an event where we could really prove our purpose towards our customers in Colombia.
So we have a large retail organization, Retail International, and if you read the media there, you can easily find out that we were the first to fast delivery, with a fast delivery of claims payments here, so that we really could serve our purpose. Together, we take care of the unexpected and foster entrepreneurship. The unused large loss budget, assuming that there is no late notification, translates into a roughly EUR 400 million net income effect. With that, having a record in all four of the segments, having high qualities in earnings, and by the way, we have also increased our resiliency during the course of the first nine months, we are super confident that we are able to deliver a result of above EUR 2.8 billion.
To be a little bit more concrete, we have to do steering measures to achieve it, but we are not steering the result up. We will realize some more losses on the fixed income book. We will even strengthen our resiliency during the course of the year and add that to this already super strong balance sheet what we have. This all together should then translate into a return on equity of around 19%, slightly above 19%, what I would expect for the full year to happen. Let me now provide you with some color on how the segments performed. As usual, I start with Corporate & Specialty. In Corporate & Specialty, top line is flat, which is due to a disciplined underwriting approach which Edgar and his team is performing.
This has led to an outstanding quality of the book, which then translate into a net income growth of 11%, where they were able to contribute to the group EUR 455 million net income contribution with a combined ratio of 90.3%. This is despite the fact that they have already added again to the resiliency in the segment. Return on equity stands at 16.9%, and we expect it to be above 16% also for the full year. Retail International is our growth machine. With regards, they added 9% top line, both in EUR terms and currency adjusted. Our group net income was even rising by twice the number, by 18% to 561 million.
Please keep in mind that they were able to deliver a combined ratio clearly below 93%, with 91.4%, despite the fact that they had quite some nat cat events during the course of the third quarter. On the one hand side, there was this earthquake in Colombia, where the claims management locally in Colombia did a great job. Second, we had flooding events which were related to the El Niño phenomenon in Chile, which also they had to cope with. Nevertheless, they were able to deliver the strong technical performance during the course of this year. This translates to a return on equity of 20.1%, even if we were to adjust it for the minority buyout at the beginning of this year, it is then 19.2%, which is an outstanding number for Retail International. Coming to the next segment, the smallest one, Retail Germany.
They are contributing this quarter, or the first nine months, 8% to the overall profit. With regard to the insurance revenue, we have a stable development, which is better what we initially expected, because we had to compensate for the loss of the Targobank agreement, which accounted for roughly EUR 100 million insurance revenue, and the team around Jens Warkentin was able to do so. The group net income is up by 37%, and this is despite the fact, if you look into the details here, that the insurance service result in non-life was a little bit shrinking due to the fact that they had three major man-made losses in it, which were accounted for. Nevertheless, they were still able to achieve a combined ratio below 93%, and I would like to add that they also have increased the resiliency in the segment by displaying this number.
The big driver of the increase in net income is the efforts Jens Warkentin and his team has undertaken to improve the cost efficiency in the segment. Second, there is a small tax effect in it which contributed also slightly positive to this nice increase in the net income. Return on equity stands at 14.1%, taking into account some parts of the profit of Ampega, of our asset manager. Coming to the biggest, by far biggest segment, reinsurance, which is contributing 47% to the overall profits. There, most of you might have listened to what Christian Hermelingmeier and Clemens Jungsthöfel have told you. Very benign development, 8% increase in profits, and for our 50% share, it is more than EUR 1 billion what they contributed to the group net income of Talanx. Return on equity stands at very favorable 21.4%, and we are happy majority shareholders of Hannover Re.
Coming from the segments back to the group as a whole, and to start with, what is the capital base, how it is developing during the course of the year. We have a solvency ratio of 241%, which is outstandingly strong and which brings us in a position that we can capture growth opportunities if they arise. It is slightly down compared to the beginning of the year, where we stood at 243%, and this is due to the effects which were explained at Hannover Re. The effects on Talanx level are much smaller due to a better diversification. If we do not only have the reinsurance but also the primary book, we have slightly higher diversification impacts here. Looking at the development of the net asset value of Talanx, we have a nice increase of equity by roughly EUR 1.5 billion during the course of the first nine months.
If we then add also the EUR 900 million dividends, then this is a value creation of roughly EUR 2.4 billion, which we were able to achieve for our shareholders with regard to the net asset value development. If we then add on the shareholders' equity also the profits which are embedded already in the balance sheet of business which we have written, where the profits not yet have emerged. If we add the contractual service margin and the risk adjustment after minority and taxes, then we end up at EUR 23 billion shareholders total value, which supports the market cap of Talanx nicely. Coming to the investment portfolio, and it seems to be a little bit boring. We have changed not much, but I really like it this way.
We still are seeking to take risk on the insurance side and taking a little bit less risk on the investment side, as we can diversify the insurance biz better than we can diversify investment risk. With regard to the investment risk, it is a rather conservative approach with more than 80% invested in fixed income, whereof more than 90% are related to investment grade. Nevertheless, we use the investment portfolio to steer the volatility of our earnings development. What we are currently undertaking is that we are realizing losses on the fixed income portfolio. We are selling bonds which we bought during the low interest rate environment and buying bonds as of today with higher coupons.
This should serve that the investment result will be higher in proportion to the insurance service result in the years to come, so that we can continue to show earnings growth in the future. Already in our numbers after nine months is what we did in the past, where we already started with this exercise, and you can see that there is an increase in the investment income of 13% compared to the previous year. Let me now provide you with an outlook, and all what you are listening to is that we have a lot of confidence in Talanx Group. Our confidence is really derived from our business model. We have a super strong diversification. Even if an adverse development happens in one segment, there are still the other segments which can compensate for it.
We have this focus on P&C business, and the quality of our portfolio, which displays a combined ratio below 90%, is pretty strong. We are cost leader. For 93% of our business, we are already cost leader, and in Retail Germany, we are working hard on improving the cost efficiency. Even so, we are not only working in those segments, so we have cost initiatives in all of the four segments in order to ensure that we have this competitive advantage also in the time to come, because this competitive advantage serves also in a softening market. On top of it, we have resiliency. We have even strengthened the resiliency during the course of this year, even though we have already a super strong balance sheet.
All of this provides us with the comfort that we have raised our outlook to above EUR 2.8 billion for the full year. To put that a little bit into context, two and a half years ago, we have set out a target of above EUR 2.5 billion for 2027, and now we are to achieve this target one year earlier and much higher. The same will be true for the dividend payment. We promised EUR 4 for 2027 to be paid out 2028. We will now deliver clearly above EUR 4 for 2026 to be delivered in 2027. The concrete number we will tell you by the year-end numbers in March 2027.
For the next year, we have set the guidance that for the first time in our history, we are to exceed the EUR 3 billion threshold in net income contribution, which is then 20% above the initial target which we have set out for this year. Part of this increase in the profits will be derived from slightly better Group Operations, where we will get close to break-even, as both internal reinsurance and the asset management have grown and they are contributing a little bit more profits. On March 18th, sorry for that, on March 18th, we will provide you with the full-year numbers, and on top of it, we will provide you also with new midterm targets till 2029 on net income and return on equity. Obviously, on top, we will provide you with a concrete number on the dividend payment for 2026.
And with that, I hand over back to Bernd for the Q&A.
All right, so let's dive into even more details. If you want to pose a question, as I mentioned earlier, use the hand raise feature. The first question I see on the screen is coming from Hadley Cohen from Morgan Stanley. Hadley, please unmute your mic and go ahead. Good morning.
Morning, everyone. Thanks very much for taking my questions. So, firstly, on the guidance for 2027, thank you for that. It implies around high -single-digit growth year-on-year. Is it possible to give us some early indications on how you're thinking about the sort of mix between what's driving that, so between sort of top -line, investment result, underwriting margin? And then in relation to that, how close are we now, do you think, to a sort of clean level of net income for the business? Would you still think that above EUR 3 billion allows you to further build conservatism either in the buffers or elsewhere? And then my final question is just on pricing in Corporate & Specialty. I think one of your peers is talking today around an improvement in the sort of second derivative of pricing in the Q3.
Just wondering if that's something that you're seeing as well, and if you think it's a sort of one-off or part of an ongoing trend potentially. Thanks.
Okay. Quite a few questions. If I miss one, just repeat it. To start with, what will be the mix of the EUR 3 billion for the next year? First of all, I do not want to provide you with a mix of in between primary and reinsurance, as Hannover Re is coming out with a Capital Markets Day with their view on the next year, and then you will have the full picture afterwards. The only thing I want to bring across right straight away here is a little bit better in Group Operations will be part of the story of above EUR 3 billion for the next year. In between insurance service result and the net insurance finance and investment results, it's a complicated term, we expect that the contribution from investment side will rise stronger than the contribution from the insurance service right.
This is due to a softening in the market, which will then be a little bit displayed also in the insurance service result. Overall, it's very early to say whether we expect to still continue to build resiliency during the course of 2027. I think we are better off discussing that after the renewal call of Hannover Re in January, because they are contributing 47% to our numbers. Then you had some question on pricing. I guess you meant the pricing in Corporate & Specialty. In Corporate & Specialty, we still see a development that inflation, which we observe in claims, is slightly higher than the price increases which we can achieve in the market. This is a current development, and yeah. In particular, this effect is particularly strong in property and in cyber.
Thank you.
Okay. Next in line is Andrew Baker from Goldman Sachs. Andrew, good morning. Please unmute your mic and go ahead.
Good morning. Thank you for taking my questions. First one, I guess primary business now is 53% of the bottom line. As we think about next year, or I guess, or really beyond, do you expect that contribution from primary business to increase over time? Secondly, we obviously saw an acquisition announced in LATAM, so CNP acquired some of Prudential Financial's business in Brazil and Mexico. Appreciate probably on the higher end of what you were looking for, but did you look at that business? I guess more generally, what is your view on the M&A pipeline where we stand now? Thank you.
First, with regard to the business mix, I really want you to wait a little bit after the Capital Markets Day of Hannover Re. Then you can easily figure out the proportions which are there to come. In the very long run, the proportion of primary will rise a little bit more, because given that we will continue to invest also organically in the primary business. With regard to the M&A pipeline, we are looking for non-life targets predominantly. Yes, we are looking for targets in South America or in Latin America, and we want to further grow our business franchise there in Europe, and also in Corporate & Specialty, and there with a certain focus on U.S.
Great. Thank you.
Okay. Then we have Michael Huttner from Berenberg. Michael, good morning. What is on top of your mind this morning?
On top of my mind is how long you can continue to raise guidance. We are in a soft cycle, right? Both in reinsurance and in Corporate & Specialty, so that is 60%, 65% of your business. You are raising guidance. Can you maybe explain the philosophy here? Because if you are a generalist, you would say this makes no sense, right? Almost two-thirds of your business is in a down cycle, and here is a group which is saying, "No, we can actually grow more and we will beat," and all this good stuff. I suppose really what I am asking is how long do you think the soft cycle continues, and at what stage can this ever come back and kind of be more of a challenge? Then more detailed questions. I did not catch it, and I am really sorry I was not fully listening. You spoke about resiliency.
Is this on top of the EUR 750 million kind of unused budget for nat cat, so for nine months, the resiliency building in 2026 here today? Then the other question is, I am just curious, how did you achieve 82% combined ratio in motor and Retail Germany? I do not understand. This is such a result. If the number is that good, was I right in hearing that you would be interested in buying in Germany? That is it. Thanks.
First, why are we raising our guidance? We are really confident looking at the quality of our portfolio and with regard to our cost leadership, which we have in 93% of the business. In the end, the business model of Talanx derived, and if you look at it from a customer point of view, we can offer slightly lower prices than some of our peers, yeah? Because we are giving parts of the cost advantages which we have, which we translate into a little bit more competitive position. This will allow us to better manage also a softening cycle compared to most of our peers. On top of it, the finance community, and that is not me alone, it is the whole team of the CFOs in the Talanx Group, we are trying to manage the volatility.
Our first target is dividends always up, so as we bring the company in a state that we can deliver on that. Second, we want to provide you as investors with an earnings growth with lower volatility. This is why we are steering results. With regard to this year, yes, we are going to steer the results down during the course of the fourth quarter, yeah? In order to ensure that in the next years, we will have growing net income. So, there is a lot of confidence behind the numbers we have set out here. The resiliency, whether it is on top, yes, it is on top. Yeah. On top of what I have said. Second, the 82% in motor, this is derived that we have certain borders of resiliency. If you have too much, you have to release some, and so this what needed to be done.
But overall, in the segment, Retail Germany, we have built resiliency, but in other lines of businesses. This gives a little bit the swing between the various lines in Retail Germany.
If Germany is that good, would you be Because I did not catch your M&A targets. Would that include Germany or not?
Would love to buy something in Germany to improve our strategic positioning here. But to be honest, there is nothing yet really available. The German market is also heavily driven by mutuals, which has a certain impact on the achievable return on equity, what you can do. So this has to be balanced when looking at targets in Germany. But if there is something available, we take a close look at it and assess whether this fits to our own operation.
Good.
Thanks for your questions, Michael. Next in line is Chris Hartwell. Chris Hartwell from Autonomous. Good morning, Chris. What do you want to know?
Good morning, Jan. Couple of questions from me. First of all, can we dig a little bit into LATAM? Just to get a little bit more color on, I guess, what's driving the growth in Q3. But also, if I add back the nat cat experience in Latin America, it sort of felt like the insurance service result was a little bit light. Again, if you could sort of touch upon that, maybe that's FX. Secondly, on Retail International. Poland has been growing really, really strongly. Some of the market stats shows Talanx has really driven market share there over the last couple of years. At the same time, the profitability there seems to be excellent. Again, if you could just tell me what you're doing, what's driving that success in Poland.
If I may, can I come back to the targets, just as a quick third question. If I look at the reinvestment rate versus the running yield, and compare that obviously with your investments and duration, that should drive another year of strong investment income upgrade in 2027 over 2026. Then if I add to that what you've been saying on the Corporate & Specialty segment, that's been running sort of triple-digit headwind, and you're now expecting that to be zero. Those two together should drive more than the uplift in the guidance from 2026- 2027. I'm sort of wondering, why not more? Is the balancing item there some more resilience in 2027? If you could comment on that as well, please. Thank you.
Oh, there were quite a lot of questions. First, with regard to the growth numbers in the third quarter, the growth of Retail International was mainly derived from Poland and from Brazil. These are the main drivers, and Mexico is third in the ranking here. With regard to the nat cat exposure, we had this, and I'm talking just Retail International now when I'm talking about Colombia, because obviously there is also some claims with Hannover Re. If you see the whole number, the group as a whole has a net loss out of Colombia of EUR 270 million. Now I'm talking about Retail International, where the loss is pretty small, just EUR 9 million, because they have a very good reinsurance structure when we allocate the risk within the group.
This is despite the fact that the gross burden of claims in Colombia was also in the area of above EUR 250 million. What we are really proud of is that the team in Colombia really served the clients much, much faster than our peers. We were there when the customer needed us, and I think this will support the value proposition of the Colombian entity in the years to come. Next to this earthquake in Colombia, there were flood events and storm events in Chile, which amounted to EUR 40 million gross. They are in close correlation also to the El Niño phenomenon. It's really something to watch also going forward.
Nevertheless, looking at the combined ratio as Chile, which also has a very good internal reinsurance structure, they were able to deliver a 92.4% combined ratio in Chile, which was great taking into account that events. Then you wanted to give me some insight on Poland. Yes, in Poland, we have a fantastic management team who did a great job, not only this year, but also in the years before. They have become a clear cost leader in the Polish market, and they can translate this cost leadership in growing market share, which they did during the past years. The development of Poland and the super strong contribution to the insurance service result during the course of the first nine months is now coming down a little bit because the market in Poland is softening.
The PZU and some others have started to be more competitive on prices, and we see that in the overall development. There will be a little bit less impact from Poland in the year to come. In this, given the size of Poland within Retail International, this will also lead to a little bit lower growth than this outstanding 18%, which we have seen in net income development of Retail International in the years to come. This then will be compensated by, one, a little bit by Group Operations, but also looking at the other segments where we expect to have rising investment income due to what we are currently doing, realizing some losses in the fixed income book, which will then provide us with higher ordinary income in the following years. Does this provide you with some color on what's going on, Chris?
Yeah, that's great. Thank you. Yeah.
Okay. Iain Pearce from BNP has also questions. Good morning, Iain. Please unmute your mic and shoot your questions at us.
Good morning. Thank you for taking them. It's a couple on the Group Operations guidance and that line item, really. I mean, looking back, Q4 tends to be the big quarter for the Group Operations line. Just thinking about the guidance year-on-year of that number expecting to be flat, I mean, where are you expecting that to land for 2026, and how much of a tailwind do you expect from the Group Operations line? Because we're at minus EUR 50 million now. Where do you expect that to land for the full year, given that the historic Q4 been the big number? Then on that guidance around the benefits coming from the growth of the internal reinsurance and the growth of the internal asset manager in the Group Operations, are you making any changes there? Because it does feel like that's quite a big move.
Is there restructuring going on in the internal reinsurance structures, something that's going to be a big tailwind to that number, or is it just the growth of the operations organically that's driving that change?
Well, thank you for your question. Unfortunately, it's even a little bit more complex. So, within Group Operations, we have, one, the result of Ampega, the asset manager. Second, we have the internal group reinsurance, which we have built up over the past years. Year by year, we have also increased the resiliency level there, and now we are reaching certain limits, and so we will have to display more profits also from the internal group reinsurance. Third, we have the finance result in it of Talanx. Fourth, sorry, there is the tax. There's some volatility which is derived from the taxes. Overall, we have a very prudent tax accounting, and if we get some taxes back, that provides with a little bit volatility.
A prediction of Group Operations also depends a little bit on what the German tax authorities are doing, or other tax authorities are doing. With regard to the current year, we expect it to get closer to break even, and the same is true for the next year. So, in the past, we had this EUR 50 million-EUR 100 million negative, and now this year will be a little bit better. This year will be driven more by Ampega because in this year, we have quite to bear some losses from the nat cat events in Colombia and Chile in the internal reinsurance, and from some tax benefits, which we will have to account for by the end of the year. Sorry for this complex answer, but Group Operations is a little bit a mixture.
Understood. Thank you.
Michael Huttner from Berenberg has a follow-up question. Michael?
Yeah, it was just one, really. Türkiye had an excellent combined ratio. I am not sure, your excellent, I told me a number, and I am not sure if it is nine months or Q3, so apologies, it is my understanding. 101%, which for a high interest rate country like Türkiye is stunning. Can you talk a little bit about how far the turnaround has been in Türkiye and what sort of, are they actually starting to emit cash and just to give us a feel? Because I remember you were quite clever. When you bought Türkiye, you bought it from somebody who was really got fed up with it, so you got a very low price for it. You paid a low price for it. Thank you.
Thank you. Türkiye, yes, you are right, 101% is the combined ratio of Türkiye. And in Türkiye, the colleagues are working hard. They have not yet contributed to the capital upstream, yeah? But this is due to the fact that we want to further grow our business there, yeah? We have just entered a cooperation also with Fibabanka, yeah? Which is contributing nicely to the growth, yeah? Which we see there, and also with regards to give you a rough number, they have an increase of by EUR 55 million insurance revenue compared to the previous year. So, just in euro terms, yeah? And yes, we are earning money, so we are very ready to deploy capital also to Türkiye. And yes, I am the CFO, in the midterm, I also expect some dividend payments.
Cool. Thank you.
Okay. Let me check the screen whether there are more questions. No questions in the chat room, no hands raised. Michael, yeah, go ahead, Michael.
Sorry, I have one, and it is really cheeky. I know you do not want to talk about dividend, but you book your dividend, I think you are the only company I follow which books a dividend at the start of the year. I suppose, in funny ways, if I think about how you look at the solvency ratio, so 241%, would that give me a feel for how much flexibility you have on dividend? It is a fishing question, I really apologize, but given everything else is so well covered. Thank you.
First of all, the capital base of the group is no restriction for paying a higher dividend given the level we are in. What we want to deliver on is really dividend always up. This is the priority one for the CFO community, and we will deliver you a dividend. We give you the concrete number on March 18, and ensure you that this is just the starting point for another growth of the dividends in the years to come.
Thank you.
Okay. Final chance for further questions. Chat room, no questions, no hands raised, so I suggest, Jan, some concluding remarks.
Yeah. First of all, thank you for your questions and thank you for attending our call. You see Talanx has a lot of confidence, not only for 2026, but also for 2027. The main competitive advantage, and I really like Michael's question on that one, is that we have cost advantages compared to our peers. We are working hard to ensure to keep this cost advantage. We want to be, like Hannover Re says, somewhat different, or we say at Talanx, traditionally different, yeah? In this terms, operating with leaner structures, being closer to customers in a highly decentralized organization. By that, we empower our people, be it in Latin America, Europe, or in Corporate & Specialty, to make a difference. If you empower people to make a difference, we strongly believe they do.
This is the driver why we are so confident to increase our profits also for 2027, even though the market is softening. Thank you so much for listening.
All right. We close the call. See you in a bit when we release the 12 months numbers in March. Thanks and bye-bye.
Bye.
[inaudible]